Getting Out Ahead of the Recovery

Ayn Rand had an image in Atlas Shrugged that has always stuck with me.  The government looter-weenies were likened to a guy standing on the roof of a boxcar on a speeding train, claiming to be in charge of the train's motion.  To extend the analogy further, a guy on top of a freight car (in Rand's day) only had the power to slow the train down (via the brake wheel on the car) but obviously had no ability to accelerate the train and had no relationship to the real motive force that drove the train.

The analogy has always been a powerful one for me in viewing Congresses and Presidents when they talk about the economy.  Claiming to be in charge of the economy, they have little power except to impede its progress.  And they have so little connection to the true motive force behind the economy, that it is clear they don't even comprehend its operation.

Which all leads me to wonder, is the rush to pass the stimulus bill based on a true perception of emergency, or is it driven more by the need to do something before the economy heals itself (which is the only way the economy every recovers).  Via Carpe Diem, the NY Fed model based upon year-ahead yield curves is predicting that we will be out of recession by the latter half of this year:

fed1

The home page for the NY fed model, including data, explanations, and its history is here.

Update: Here is a longer history of the metric.

fed_long

  • James Howe

    I fully believe that one reason Obama and the Democrats wanted to get this bill passed quickly is so they could claim that they were responsible for the recovery. It won't matter if the effects of the bill aren't felt until later, no matter when the recovery actually starts, the politicians will claim responsibility and the uncritical press will not investigate further.

  • ErikTheRed

    While correlation doesn't necessarily equal causation, that's a pretty impressive correlation. Much weaker stuff than that started a new global warming religion 🙂

  • Captain Obviousness

    This current recession may end in 2009 or 2010, but what about the dollar? Printing money at the Fed, Congress spending money we don't have, I'm afraid there will be consequences for this. When Zimbabwe prints money to pay its debts everyone shakes their head and says "don't they know what they're doing to their currency?" But when USA does it everybody nods and says "yes, this is great stimulus." I'm not expecting trillion dollar gallons of milk or anything, but there will likely be consequences to an unprecedented creation of money out of thin air.

  • Link

    The best analogy I can think of is that the federal government is acting like a household running up credit card debt. The US currently pays a low rate, so is doesn't feel like it's a big deal. Dad ran up the bill -- Bush and a Republican congress -- so now Mom feels entitled to do a lot of shopping.

    But if what we buy doesn't yield a return, we're worse off. That's the problem with government spending ... very little is a true investment with a return.

    We're really worse off if the rate on our big credit card gets jumped up to 29.9% some day.

    To keep the analogy going, we're living in a house that grandpa and grandma gave us ... but they put a big second mortgage on the place and forgot to tell us -- Soc Sec Medicare.

    Further analogy, Mom and Dad only expect one of their three kids to pay the bill.

  • bill-tb

    It's as if there is good news and bad news, the bad, the credit card companies won't let us use our cards anymore -- The good, we got another pre-approved card in the mail today.

    I wonder if it's applicable to this day. When you look at what has happened, the crisis is one of confidence. People do not believe what is being done will help anything, and they have retreated to their bunkers.

    The currency is being imploded, where do you think the printed money is going to show up, and the only tool is to lower interest rates. And look how that has worked for the car manufacturers, electronics manufacturers, and on it goes ......

    Watch this video ... http://www.youtube.com/watch?v=UOjnTOjvzxQ&eurl=http://tarpon.wordpress.com/

    This is not a normal recession.

  • Shenpen

    Good article. Europe looks a bit better too, I think there weren't many problems over here either by the end of this year, inflation, yes, but not stagflation:

    http://www.zew.de/en/presse/presse.php?action=article_show&LFDNR=1146